Cleveland-Cliffs Inc. (NYSE:CLF) (“Cliffs” or “the
Company”) is pleased to announce that it has entered into a
definitive agreement to acquire Stelco Holdings Inc.
(TSX:STLC) (“Stelco”). The acquisition confirms Cliffs’
commitment and leadership in integrated steel production in North
America, and also brings an additional 1,800 United Steelworkers
(“USW”) union employees into Cliffs’ workforce. Under the terms of
the agreement, Stelco shareholders will receive CAD $60.00 per
Stelco common share in cash and 0.454 shares of Cliffs common stock
per share of Stelco common stock (or CAD $10.00 per share as of
July 12, 2024), representing a total consideration of CAD $70.00
per Stelco share. The transaction has received full support from
David McCall, International President of the USW union.
The transaction implies a total enterprise value of
approximately USD $2.5 billion (CAD $3.4 billion) for Stelco and
represents an acquisition multiple of 4.8x 3/31/24 LTM Adjusted
EBITDA with synergies. Cliffs has a clear line of sight to the
achievement of approximately $120 million of estimated annual cost
savings with no impact to union jobs. The acquisition is expected
to be immediately accretive to 2024 and 2025 EPS. The transaction
implies pro forma net leverage of 2.4x 3/31/2024 LTM Adjusted
EBITDA. Upon completion of the transaction, Cliffs shareholders
will own approximately 95% and Stelco shareholders will own
approximately 5% of the combined company, on a fully diluted
basis.
Stelco is an integrated steelmaker consisting of two operational
sites, both located in the province of Ontario: Lake Erie Works,
the newest and lowest-cost integrated steelmaking facility in North
America; and Hamilton Works, a downstream finishing and cokemaking
facility. Stelco ships approximately 2.6 million net tons of
flat-rolled steel annually, primarily hot-rolled steel to service
center customers. The acquisition of Stelco expands Cliffs’
steelmaking footprint and doubles Cliffs’ exposure to the
flat-rolled spot market, with cost advantages in raw materials,
energy, healthcare, and currency. Stelco adds capabilities that
complement Cliffs’ existing operations and product portfolio, while
diversifying its customer base across the construction and
industrial sectors. The transaction brings substantial integration
opportunities, generating synergies associated with procurement,
overhead, and public company related expenses.
Voting support agreements for the transaction have been entered
into by Fairfax Financial Holdings, Alan Kestenbaum, an affiliate
of Lindsay Goldberg and each of the other executive officers and
directors of Stelco, which collectively represent approximately 45%
of Stelco’s outstanding shares, pursuant to which such parties have
agreed to vote all shares held by them in favor of the transaction,
subject to customary exceptions.
Upon closing of the transaction, Stelco is expected to continue
operations as a wholly-owned subsidiary, preserving the name and
legacy of the business.
Lourenco Goncalves, Chairman of the Board, President and CEO of
Cliffs, stated: “I want to first recognize Alan Kestenbaum and the
Stelco team for the remarkable turnaround they executed at Stelco,
turning what was an underperforming asset under previous ownership
into a very cost-efficient and profit-oriented company. In the
process, they restored the Canadian national pride associated with
Stelco, and we are going to continue that. We did this deal the way
it should be done, reaching a respectful agreement between the two
parties that keeps national interests at the forefront and
recognizes the importance of the workforce. The enterprise value of
this transaction is significantly lower than the cost of building
an equivalent replacement mill in the United States, and the cost
structure is lower than what a new U.S. mill would provide us.
Stelco is a company that respects the Union, treats their employees
well, and leans into their cost advantages. With that, they are a
perfect fit for Cleveland-Cliffs and our culture. We look forward
to proving that our ownership of Stelco will be a net benefit for
Canada, the province of Ontario, and the cities of Nanticoke and
Hamilton.”
Alan Kestenbaum, Executive Chairman of the Board and CEO of
Stelco, stated: “I am proud of what we have accomplished over the
past seven years, and the value we have generated. This sale
crystallizes a 32% CAGR on a Stelco common share investment since
our IPO in 2017. Most importantly, we have revitalized Stelco and
restored it to its iconic status in Canada. I know that Cliffs will
continue to build upon the excellent work and life environment we
have created for all of our employees, and continue to be a
reliable supplier to our valued customers, while maintaining
Stelco’s stature and reputation in Canada and maintaining our
Canadian national interests. One of the important drivers for this
transaction was receiving a meaningful portion of the consideration
in Cliffs shares. I have strong belief and optimism in the North
American steel market. I believe that Lourenco and his team have
created a winning platform and I intend to remain an investor in
Cliffs for a long time to come as he and his team continue to build
out their platform and business.”
David McCall, International President of the USW, stated: “On
behalf of our entire membership, I am excited for this transaction
and proud to support a deal that is great for the resilience of
manufacturing and Union jobs in North America. Cleveland-Cliffs has
a proven track record of making sure the Union always has a seat at
the table, and this deal was no different. We are delighted to
further expand our already great partnership between Cliffs and the
USW.”
Benefits to Canada
Cliffs is excited to expand its current 1,000-employee footprint
in Canada, which consists of seven Tooling and Stamping plants and
a Ferrous Processing and Trading Company (FPT) location, all in
Ontario. The Company is committed to working with stakeholders and
to deliver meaningful benefits to Canada, Ontario, and the
communities where Stelco operates. Cliffs’ plan is to grow the
business in Canada and build on the progress Stelco has made in
recent years. In connection with this investment:
- Stelco’s headquarters will remain in Hamilton and the name and
legacy of Stelco will be preserved in Hamilton, Nanticoke, and
Canada.
- Stelco will continue its significant operations in Hamilton and
Nanticoke, make capital investments of at least CAD $60 million
over the next three years, and plans to increase steel production
over current levels from those facilities.
- Stelco will maintain significant employment levels in Canada
and Canadian representation on the management team.
- Recognizing the importance of Stelco’s operations to the
businesses in the region, Cliffs will ensure existing local
supplier arrangements are maintained.
- Cliffs values and will continue Stelco’s collaboration with
McMaster University and CanmetMATERIALS and will maintain the
existing research chairs with McMaster University.
- Cliffs respects Stelco’s commitment to charitable and community
support and will build on that legacy by increasing the overall
charitable support by CAD $2 million per year, to be directed by
Stelco’s management team.
- Cliffs will continue Stelco’s partnership with the Hamilton
Tiger-Cats and Forge FC and will maintain its 40% equity interest
and the master lease of Tim Hortons Field. The community engagement
program, including the Tiger-Cats High School Mentorship Program
will also be maintained.
- Cliffs is committed to operating the business and approaching
sustainability in a way that supports the United Nations’
Sustainable Development Goals (UN SDGs) and will ensure the
Canadian operations operate in accordance with the Company’s
sustainability priorities.
Additional Details
The transaction has been unanimously approved by Cliffs’ and
Stelco’s respective Boards. The Stelco Board formed a special
committee of directors which, following review and consideration of
the transaction, unanimously recommended the Stelco Board approve
the transaction. The transaction is expected to close in the fourth
quarter of 2024, subject to approval by Stelco shareholders,
receipt of regulatory approvals and satisfaction of other customary
closing conditions.
Advisors and Counsel
Wells Fargo, J.P. Morgan and Moelis & Company LLC are acting
as financial advisors to Cliffs. Davis Polk & Wardwell LLP and
Blake, Cassels & Graydon LLP are serving as legal counsel to
Cliffs. In addition, Wells Fargo Bank, N.A. and J.P. Morgan have
provided full underwritten financing commitments and are
backstopping Cliffs’ existing ABL Facility.
BMO Capital Markets is acting as financial advisor to Stelco,
and McCarthy Tétrault LLP and A&O Shearman LLP are serving as
legal counsel to Stelco. In addition, RBC Capital Markets is acting
as financial advisor and Stikeman Elliott LLP as legal counsel to
the Special Committee of Stelco’s Board of Directors. Each of BMO
Capital Markets and RBC Capital Markets has provided a fairness
opinion to the Stelco Board that, as of July 14, 2024, and subject
to the various matters, limitations, qualifications and assumptions
set forth therein, the consideration to be received by holders of
the common shares pursuant to the transaction is fair, from a
financial point of view, to such holders.
Conference Call & Webcast Information
Cliffs will conduct a live conference call and webcast on July
15th, 2024 at 8:30 a.m. Eastern Time. The call will be broadcast
live and archived on Cliffs' website at
https://www.clevelandcliffs.com/.
Presentation slides related to the transaction will also be
available on the webcast link and on Cliffs’ Investor Relations
page on its website, which includes reconciliations of non-GAAP
measures used in this release.
About Cleveland-Cliffs Inc.
Cleveland-Cliffs is the largest flat-rolled steel producer in
North America. Founded in 1847 as a mine operator, Cliffs also is
the largest manufacturer of iron ore pellets in North America. The
Company is vertically integrated from mined raw materials, direct
reduced iron, and ferrous scrap to primary steelmaking and
downstream finishing, stamping, tooling, and tubing.
Cleveland-Cliffs is the largest supplier of steel to the automotive
industry in North America and serves a diverse range of other
markets due to its comprehensive offering of flat-rolled steel
products. Headquartered in Cleveland, Ohio, Cleveland-Cliffs
employs approximately 28,000 people across its operations in the
United States and Canada.
About Stelco Holdings Inc.
Stelco is a low cost, integrated and independent steelmaker with
one of the newest and most technologically advanced integrated
steelmaking facilities in North America. Stelco produces
flat-rolled value-added steels, including premium-quality coated,
cold-rolled and hot-rolled steel products, as well as pig iron and
metallurgical coke. With first-rate gauge, crown, and shape
control, as well as uniform through-coil mechanical properties,
Stelco’s steel products are supplied to customers in the
construction, automotive, energy, appliance, and pipe and tube
industries across Canada and the United States as well as to a
variety of steel service centers, which are distributors of steel
products.
Forward-Looking Statements
This release contains statements that constitute
"forward-looking statements" within the meaning of the U.S. federal
securities laws and applicable Canadian securities laws. All
statements other than historical facts, including, without
limitation, statements regarding our current expectations,
estimates and projections about our industry, our business or a
transaction with Stelco, are forward-looking statements. We caution
investors that any forward-looking statements are subject to risks
and uncertainties that may cause actual results and future trends
to differ materially from those matters expressed in or implied by
such forward-looking statements. Investors are cautioned not to
place undue reliance on forward-looking statements. Among the risks
and uncertainties that could cause actual results to differ from
those described in forward-looking statements are the following:
the risk that the proposed transaction with Stelco may not be
consummated; the risk that a transaction with Stelco may be less
accretive than expected, or may be dilutive, to Cliffs’ earnings
per share, which may negatively affect the market price of Cliffs’
common shares; the risk that adverse reactions or changes to
business or regulatory relationships may result from the
announcement or completion of the transaction; the possibility of
the occurrence of any event, change or other circumstance that
could give rise to the right of one or both of Cliffs and Stelco to
terminate the transaction agreement between the two companies,
including, but not limited to, the companies’ inability to obtain
necessary regulatory approvals; the risk of shareholder litigation
relating to the proposed transaction that could be instituted
against Stelco, Cliffs, or their respective directors; the
possibility that Cliffs and Stelco will incur significant
transaction and other costs in connection with the proposed
transaction, which may be in excess of those anticipated by Cliffs;
the risk that the financing transactions to be undertaken in
connection with a transaction have a negative impact on the
combined company’s credit profile, financial condition or financial
flexibility; the possibility that the anticipated benefits of the
proposed acquisition of Stelco are not realized to the same extent
as projected and that the integration of the acquired business into
our existing business, including uncertainties associated with
maintaining relationships with customers, vendors and employees, is
not as successful as expected; the risk that additional future
synergies may not be realized; the risk that it may take longer
than expected to achieve the anticipated synergies from the
proposed transaction; the possibility that the business and
management strategies currently in place or implemented in the
future for the maintenance, expansion and growth of the combined
company’s operations may not be as successful as anticipated; the
risk associated with the retention and hiring of key personnel,
including those of Stelco; the risk that any announcements relating
to, or the completion of, a transaction could have adverse effects
on the market price of Cliffs common shares; and the risk of any
unforeseen liability and future capital expenditure of Cliffs
related to a transaction.
For additional factors affecting the business of Cliffs, refer
to Part I – Item 1A. Risk Factors of our Annual Report on Form 10-K
for the year ended December 31, 2023, and other filings with the
U.S. Securities and Exchange Commission.
This document shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any jurisdiction.
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version on businesswire.com: https://www.businesswire.com/news/home/20240714550855/en/
MEDIA CONTACT: Patricia Persico Senior Director,
Corporate Communications (216) 694-5316 INVESTOR CONTACT:
James Kerr Director, Investor Relations (216) 694-7719
Stelco (TSX:STLC)
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